Our Only Problem is That We Don’t Love Business Enough

This is a Closer Look at Tyler Cowen. He is the Holbert L. Harris Professor of Economics at George Mason University and the Director of the Mercatus Center. Foreign Policy magazine recently named him as one of its "Top 100 Global Thinkers. He is also an author, whose last book, “The Great Stagnation,” was a New York Times best-seller. Tyler Cowen joins former SEC chairman Arthur Levitt to talk about his new book, “Big Business: A Love Letter to an American Anti-Hero.” He says our only problem is that we don’t love business enough.

Host: Arthur LevittProducer: Madena Parwana

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Episode Transcript

Speaker 1 (00:00):
This is a closer look with Arthur Levitt. Arthur Levitt
is a former chairman of the U S Securities and
Exchange Commission, a Bloomberg LP board member, a senior advisor
to the Promontory Financial Group, and a policy adviser to
Goldman Sachs. This is a closer look at Tyler Cowen.

(00:22):
He's the Holbert L. Harris Professor of Economics at George
Mason University and the director of the Marcada Center. He
is also a Bloomberg opinion columnist. Foreign Policy Magazine recently
named him one of its top one hundred Global thinkers.

(00:42):
He's an author whose last book, The Great Stagnation, was
a New York Times bestseller. He's here today to talk
about his new book, Big Business, A love letter to
an American anti hero. He says that our only problem
is that we don't love business enough. He joins me,

(01:04):
now for a closer look thinking of corporations is the
bad guys has been going on in this country for
a long time, especially since two thousand and eight. What
put you over the edge and made you want to
defend American business? With this book and this passion, I've
been seeing the rhetoric from both left wing and right wing.

(01:27):
So with the presidency of Donald Trump, you of someone
who claims he's very pro business, but you look at
actual issues such as trade or immigration or just general
predictability and rely once on expertise. I think he's actually
fairly anti business, or his only pro business of businesses
on his side. Coming from the left wing, you have
Elizabeth Warren, Bernie Sanders, a lot of talk about the

(01:50):
word socialism, blaming corporations for every economic or social problem
out there. So I thought it was time for an
updating of the case for business. Did your research for
the book to surprise you in any way about the
good and bad of American style business? Well, one thing
that surprised me is I looked at data on whether

(02:11):
businesses or more honest than just individuals, and I thought
the answer would come out that businesses are much more honest,
And actually businesses and individuals seem roughly to be about
equally honest from what I can tell. There may be
a slight edge for businesses because of the commercial incentives
to maintain brand names, but I thought that would be

(02:32):
a lotsided comparison, and it wasn't. You wrote that Stanford
economist Nicholas Bloom compared management practices in the major economies
and discovered that American business comes out on top. What
is it that we do differently to be up there?
The mix of trust and autonomy in the American workplace.

(02:56):
I think it comes out as a critically important element
that people are able to delegate authority, and there is
often freedom to implement or suggest new ideas because there's
enough trust in people that the idea then get some currency.
It's a very fragile cultural mix, but we in this
country seem to have it. In Senator Elizabeth Warren's recent

(03:18):
Wall Street Journal op ed piece, she writes, traditionally, corporations
sought to succeed in the marketplace, but they also recognize
their obligations to employees, customers, and the community. In recent decades,
they stopped in favor of a singular devotion to enriching shareholders.

(03:41):
What do you think of that? I don't think that's
changed very much over time. I think businesses today do
a lot to give people jobs, to give them safe
in creative workplace environments, sometimes to lead social movements, such
as for rights for same sex partnerships. I'm not saying
businesses always do the right thing. But there wasn't a

(04:03):
golden age when American business was somehow noble, and today
it's fallen. Business does have a mission of making money
that is very often but not always compatible with the
social good. And you're right that big business is recent
human creation, dating in America from the nineteenth century. And

(04:23):
you say further that our emotions have not evolved to
evaluate it accurately. What does that mean, Well, if you
think of us as human beings, we evolved in some
earlier environment when there was hardly any wealth. There weren't
businesses in general. If you think about hunter gatherer society,
and we're basically the same beings. And then you come

(04:45):
along and it's the eight nineties and you have big
railroad companies and big oil companies. We don't quite know
what to make of them, and we start thinking about
them as people and judging them as people. And I
argue in the book that's fundamentally a miss take. We
we shouldn't think of businesses so much as like people.
If we do, they'll always disappoint us. You write that

(05:06):
another way to test honesty in business is to compare
not profits with for profits. What have you found through
that technique? If you look, for instance, at hospitals, there
are both for profit and nonprofit hospitals. It's very difficult
to find a significant difference between those two forms. The

(05:27):
nonprofits are not somehow better run or more noble, or
saving more lives. I think that's an indication commercial incentives
are not, in general so corrupting. I think there is
one sector where the for profits are much worse, that's
higher education. But in general, if you compare businesses to
less businesslike entities, I think you will find the businesses

(05:48):
on average are not more crooked, and in many cases
they're more honest. Take online dating. Who's more honest with you?
Match dot com or the people who are posting profiles
on the site. Think it's pretty obvious that it's Match
dot Com. You're right that, yes, businesses act badly, there's fraud,
But you're right. I would be hard pressed to find

(06:11):
a big business that lies to me as much as
my friends, family and associates to That's a pretty extreme
statement and says something about your friends and family. Oh,
I don't think it does. I think if you take
half truths to be lies to get through the day

(06:31):
people in all kinds of social interactions, they bend or
shape the truth or how it's presented. It's very common.
It's very common amongst workers in the workplace. Do you
spend a whole chapter disputing the idea that CEOs are
paid too much? Your first point is that the current
CEO role goes way beyond just running the day to

(06:53):
day business. Tell me about that. Well, these days you
need to do much more with government relations. You need
to do public relations, you may need to do social media.
You probably have to know much more about the global economy.
You may need to manage a global supply chain. Uh,
it's much harder than just running the business in the

(07:13):
old narrow sense, And the demand for that role has
gone up, and the supply a really good candidates are
tougher to find, so the pay for them has gone
up in turn. How monopolistic do you think American big
businesses in two thousand and nineteen. I think we need
to look at its sector by sector. What I found

(07:34):
to be the most monopolistic sector in terms of being
an actual problem was actually hospitals and health care. I
think that is a national crisis and it's driving some
of the affordability problem. But I think in most areas,
if you think about this as a consumer, you have
never had more choice for what to buy from, whom
to buy it, where to buy it, what you can

(07:56):
get your chance to buy abroad. So I don't think
we have a general, real problem of monopoly today. Referring
to a paragraph that you had in the book where
you call mobile internet uh an addiction. Oh, some people
might be addicted to it. A lot of people use

(08:17):
it very well and very productively. But I think especially
with younger people, and there's some evidence, especially for younger women,
it's not always good for us how much we use it.
Where did you find significant levels of monopoly and pricing
power in which industries? Again, I think hospitals and healthcare,
where prices are rarely transparent, they are the worst offenders.

(08:39):
But overall, the biggest monopoly in America is public education
K through twelve, and that monopoly, I would say, is
not receiving enough criticism. They are most families really do
not have very much choice. I think that's that's largely true.
That's an important point. Everyone on the right and the
left thinks that they want to break cup, Facebook, Amazon,

(09:02):
and Google, But you defend the big tech companies. Why
is that, Well, each of those companies is a very
different case, but in general they have lowered prices and
given us more choice. I would also stress those companies
break down other monopolies elsewhere. So a lot of small
businesses will advertise, say on Facebook, they can't afford to

(09:25):
advertise on TV or radio, and that helps them get
started or could beat better with larger businesses. So Facebook
on net is actually an anti monopoly force. Now in
that connection, you do have a complaint about Facebook, since
it's your belief that it's not elevating the quality of
news consumed by the public. Is there a remedy for this, Well,

(09:48):
the simplest remedy if you're unhappy with Facebook is to
spend less time on it, subscribe to Bloomberg, New York Times,
many other outlets, some of which of course do pop
up on Facebook. But I think you have found in
all eras people consume a lot of bad news. It
was especially true for television today. Cable news is a

(10:09):
much bigger political problem than Facebook in my view, in
terms of increasing polarization. Facebook's founder Mark Zuckerberg recently urged
the world's governments to regulate social networks. Specifically, he wants
them to protect the public from harmful content. Do you
think that's his job or some other government agency. Well,

(10:35):
I'm very much a First Amendment absolutist, so I don't
want governments restricting what's say Internet platforms can post or
connect us to. I would like to see those companies
behave responsibly, in some cases more responsibly than they have
in the past, But I don't want governments to have
authority there. What about all the data the big tech

(10:55):
companies have collected on all of us and now facial recognition.
Who should be protecting our data privacy and personal privacy
or is that an old economy notion? Well, I would
start with this point. The biggest threat to your privacy
usually are people you know, friends, acquaintances, gossips, colleagues at work,

(11:18):
and people hardly seem very worried about that. So if
if privacy is really what we're going after, I would
start there. Say, the files kept on you by Facebook
very rarely have led to cases where people's actual lives
and reputations have been ruined, So to me, that's pretty
low down on the list of privacy problems facial recognition.

(11:40):
I do have a lot of qualms about I would
consider limiting that by law. Eliminating it totally. Totally is
a strong word, but in a lot of public spaces
where there is not a safety issue, I don't want
to see us move toward widespread facial recognition as they
do in China, and I would be willing to pass
laws to where that end. Now, you write about some

(12:02):
myths about Wall Street that you'd like to dispel. First
of all, your dispute that short term ism is a
big problem with Wall Street in business, What do you
mean by that? Well, Amazon has taken a very long
term perspective and reinvested profits. The share price has been
very high. There's plenty of evidence that corporations on average

(12:25):
seem to get it about right. You know, half the
time they're too short term and half the time they're
too long term. But that actually means on average, they're
doing their best to maximize long term value. That's when
a share price reflects. And if you think that all
the other traders are too short term, well you can
go along and buy the shares they're neglecting and do
very very well for yourself. I agree with that notion.

(12:49):
You go on to write that the American system of
venture capital is the envy of the world. Why is
this do you think unique to the United States? I
think we have one part of the country, obviously, the
Bay Area, where the network effects and the expertise and
the history of doing startups is so strong that so

(13:10):
many people want to cluster there, and that is a
self perpetuating phenomenon, even though the rent is now too high,
and the only country that's coming all close to that
is Israel. In your chapter on equity markets in Wall Street,
you right, in essence, you can think of America as
the world's largest and most successful hedge fund. Well, the

(13:34):
United States has a lot of multinational activity abroad, and
those companies are earning fairly high returns by globalizing, which
is a good thing. Indirectly, you can think of the
country as a whole as funding this venture by running
high levels of debt. But our government can borrow at
pretty low interest rates, and the country as a whole

(13:55):
is a kind of levered hedge fund that involves some risk,
but essentially we're making money on those investments borrowing from
the world at a whole. You know, basically a zero
rate and then earning something on it abroad? Are the
big banks being broken up in essence by all the
personal finance apps that are providing banking, payments and investment services.

(14:21):
I don't see the big banks being broken up or
going away anytime soon. But virtually all Americans have a
lot of choice when it comes to banking. And I
live in suburban Virginia. There are easily, you know, ten
banks I could choose here and they would all service
my needs. I think there's some problem in inner cities,
but for the most part, banking services is a pretty
competitive market. Recently, Jamie Diamond commented that even with the

(14:47):
stock market highs and low unemployment, of Americans don't have
four dred dollars to deal with unexpected expenses. Un Americans
don't have medical insurance. Simply put, the social needs of
far too many of our citizens are not being met.

(15:10):
Business is doing great. Why aren't most people feeling it?
There's a few points I would make. First, those numbers
have been disputed. Most Americans do have access to more
cash than that, in my opinion, if only through saye, family, friends,
and church. Second, I do think the savings rate should

(15:30):
be higher than it is. I don't blame that on business.
A Third, we have past Obamacare, which is an imperfect law,
but it has covered many more Americans and will cover
many millions more once the Medicaid expansion works through the
entire country. So we're addressing that problem. So my perspective
is more optimistic. And in general, CEOs have a tendency

(15:54):
to try to say conciliatory things to look humane, but
often what they say isn't exactly true. Senator Warren has
a new proposal that corporate executives who negligently oversee a
giant company committing massive scams that cheat to fraud and
steel causing harm to American families would face jail time.

(16:18):
Is it time for legal accountability? Isn't this part of
the reason that people hate big business. Well, companies are
already legally accountable. But keep this in mind. There's such
a tangle of regulations. They are so numerous and so
complex that no one person, no one lawyer, no one
company knows what all of them are. So invariably, any

(16:42):
large corporation at any point in time is probably breaking
some of those laws. So in essence, you make every
CEO that kind of automatic felon where it's only up
to the discretion of the government whom they can throw
in jail. So I consider that a very dangerous proposal.
But that noted, there are certainly some environment the laws
we should enforce more strictly under current law. You also

(17:05):
write that the basic idea that big business is pulling
the strings in government isn't really true. But every day
we read about the revolving door between industry and the
agencies that regulate them, and over three billion dollars spent
on lobbying. So what's the real story. Well, there clearly

(17:27):
are some areas where big business has a significant say
and too large a say. Policies towards pharmaceuticals, excess profits
for defense contractors, regulations that benefit some companies at the
expense of others, some tariffs. But if you look at
our government as a whole, that is not most of
what our government does. Most of what our government does

(17:48):
is transfer money and support old people, and run social
security and Medicare and medicaid and defense spending, and pay
interest on the debt. And for the most part, those
largest of program are driven by what voters want. I
think that's somewhat simplistic in that I've seen personally in
Washington the impact of political contributions on outcomes, and there's

(18:17):
hardly a situation with the use of sufficient amount of
funds that you can't impact the outcome. That's just the
culture of politics in this country today. Well look at
Donald Trump. He became president and not by outspending his opponents.

(18:40):
You've been doing a blog for fifteen years and you
say that the restaurant recommendations are your most popular posts.
How did you start doing this and how is the
ethnic food scene in Washington. I live in Northern Virginia,
which is much better ethnic food than Washington, d C.

(19:00):
We're much more cosmopolitan and more diverse. And I just
started keeping personal notes a long time ago, over thirty
years ago, and eventually I started putting those up on
the Internet and then it morphed into a blog. So
I have about a hundred and thirty pages single spaced
notes on local area restaurants and it's very useful to

(19:20):
me and I have a lot of readers. What are
your two favorite restaurants in the d C community right now?
One would be Mama Chang and Fairfax, which is food
from the Chinese province of Henan, and another would be
Elephant Jumps, which is Thai food, mostly Bangkok style. I
see you seem to prefer Asian food. I think on
average it's better. French and Italian food in their respective

(19:43):
countries are amazing, but they don't translate as well here,
and you need to pay large sums of money to
get good French food. And say New York City or
Los Angeles, and you can get an amazing Chinese meal
for twelve or thirteen dollars in the suburbs rock Vale
or Fairfax for false church, So you know why go
to the the continental route. In your travel blog post about

(20:06):
visiting the historic city of Ghent, you write that most
of all, you should walk around and ponder why we
seem unable to build such compelling cities these days. Tell
me about that most contemporary cities seem to me either
ugly or mediocre. Some of that may be the fault

(20:29):
of the automobile. They're mostly built to accommodate cars. S
Gent is gorgeous right now. We're building some incredible individual buildings,
But to think of a new city sprunk from nothing,
that's amazing. Brazilia is one example I can think of,
but there are very very few others. And I fear
there are certain kinds of beauty that right now we

(20:50):
are closed to, perhaps also in music. To me, that's
a great shame. I don't know how to fix it.
Tom Nichols, who wrote the Death of Expertise, says that
people take too much for granted all the great advances
thanks to corporations. The mobile Internet connects us to everything
and everyone. Would you agree that perhaps there is so

(21:12):
much prosperity we can't see it clearly. Yes, just the
mobile Internet and being connected to so much of the
world's information within seconds. It's quite recent. The iPhone is,
you know, just a bit over ten years ago, and
we now treat it as if it's, you know, a
god given right, and we're criticizing it. And to me,
it's one of mankind's greatest achievements. Why then, are there

(21:36):
so many younger people skeptical about capitalism? I think a
lot of younger people are conflicted. They've grown up in
a time when the labor market often has been weaker. Uh,
there's a certain amount of disillusionment. The pace of technological change,
other than the Internet has often been quite slow, and

(21:56):
I don't think that many young people actually believe in socialism.
But calling themselves socialist is a way of dissenting or
just saying they don't like how things are going to me.
That's very concerning. I would rather they think more in
terms of making capitalism work better, companies being more innovative,
the pace of change accelerating so that if New York

(22:17):
City needs to build a new subway line, it doesn't
take almost fifty years. Do you believe that robust regulation
is good for business? Robust is a tricky word. As
you define it, it virtually sounds good automatically. I think
most areas of American business are regulated too much. I

(22:38):
think we have some that are regulated too little. Climate
emissions would be the major example. Finance I don't think
should be regulated more, but in some ways the regulations
should be tougher and simpler. But too many things. If
you want to build something, or if you want to
cross state lines and keep on working in a given occupation,
I think our country is just far too regulated inst areas.

(23:01):
You think that holds true for cryptocurrency, I think cryptocurrency
is in very rapid flux. I would prefer that to
remain unregulated for now. There are plenty of scams and
rip offs, but the people being ripped off, you know,
they're not the proverbial orphans and grandmothers. They're basically nerdy
geeks who are losing some money. And I don't think

(23:24):
that we even know how to regulate the sector what
it should look like, so I would say leave it unregulated.
Huge majorities of people want universal background checks for guns,
immigration reform, and climate change action. So why isn't the
government as responsive to its customers as big businesses? Again,

(23:47):
it depends on the area. But if you take guns,
the people who are opposed to gun control seem to
me to be much more intense than their preferences, and
the people who want more gun control so they will
vote on guns as an issue, and politicians are afraid
of them. You're right that big business is just getting
started being vital to our lives. How much more will

(24:09):
we depend on big business in the future. Well, we're
probably going to move to self driving cars at some point,
and that will be done by the private sector, so
we will be trusting businesses to ferry us around and
indeed have a complete record of our movements that does
make me somewhat nervous. I think on that it will
be a big positive, But I think people are right

(24:31):
to be worried in some regards. And our government is
in some ways gridlocked and unable to solve a lot
of problems. And we're seeing people innovate by having more business. So,
if you know Medicare doesn't work as well as you
would like, you have a concierge service with a doctor.
You pay extra. On the side, that's good for you,
that's fine, but it's also a sign that in some

(24:52):
ways our systems a bit broken. He's an economist at
Foreign Policy Magazine, recently named as one of its up
one hundred global thinkers, and he's a best selling author
whose new book is Big Business, A love Letter to
an Anti Hero. Bert Malkiel says of his book. In

(25:13):
this world where capitalism and big business are under attack
from both the right and the left, Cowen's reason and
compelling defense of free markets provides a much needed antidote
if you want more Tyler Cowen. He contributes daily to
his award winning blog, The Marginal Revolution, and he has

(25:38):
a very popular online ethnic dining guide for the Washington,
d C. Area. Tyler Cowen. Thanks for joining us. By
the way, if you have comments about the program or
suggestions for topics, please email me at a Closer Look
at bloomberg dot net. That's a closer look one word

(26:02):
at Bloomberg dot net, and follow me on Twitter at
Arthur Levitt one word. This is a closer Look with
Arthur Levitt.